AMPAM Takes a Different Approach to Consolidation

ROUND ROCK, TX — The company’s press releases tout it as “America’s #1 choice for residential plumbing, heating, and cooling.” That’s quite a claim, but the president and chief financial officer of American Plumbing & Mechani-cal, Inc. (AMPAM), David Baggett, is ready to back it up.

“We are the largest combined residential plumbing and hvac company in the U.S.,” said Baggett. “Largest doesn’t always mean the best, so we took our customers’ point of view: We are their #1 choice.”

AMPAM is the “new kid on the block,” organizing itself in 1999, a few years after the consolidation craze hit the hvacr trade. But rather than growing by acquisition, AMPAM decided that the best way to grab market share was through the start-up route.

“First of all, we are the largest privately owned independent hvac contractor in the business,” Baggett said. “We don’t have any outside investors. We are owned by the original contractors who helped form the company.

“We also don’t believe there are 100 growth markets in the U.S., as other consolidators have said. We think there are more like 35 growth markets, and we are focusing on the top 20.”

Baggett said AMPAM was prepared to acquire the top contractors in their targeted markets. And they did — up to a point.

“We didn’t believe there were enough multi-tasked contractors [doing $10 million annually] in these markets, yet we still acquired the top contractors in some of the markets. We basically shut down the acquisition program in early 2000.”

So, without an acquisition plan, AMPAM departed from the typical consolidator business model and took a different approach.

“Instead of acquisitions in the major markets, we concentrated on start-ups,” Baggett said. “We have started from scratch in several markets, despite the negative cash flow. After the first 18 months, we expect to see profits in every start-up.”

Baggett said that if the opportunity arises for a strong acquisition, AMPAM may pursue it, but that is no longer the company’s main strategy.

His logic is simple.

“If you buy a $10 million contractor, your earnings per share only go up one cent per share. If you have a start-up, the eventual earning per share is six cents per share.”

AMPAM was founded in Houston and later moved to Round Rock, north of Austin. Company ceo Robert Christiansen had his plumbing and hvac contracting firm in this community. When he was named ceo, the decision was made to move the corporate staff into the building occupied by Christiansen Enterprise.

In the current fiscal year, AMPAM expects to generate $610 million in sales from over 30 different locations. Of that total, 20% is expected to come from the hvac trade. Baggett said most locations will do “some form of hvac.”

And unlike its consolidator counterparts, AMPAM’s focus is on the installation side of the business.

“We do some service work, but over 90% of what we do is new construction,” he said. “We will do 1,000 new single-family housing starts each month and 1,300 multi-family units.”

That’s a lot of work for the company’s 5,600 employees. But there’s more that can be done, provided a few factors remain predictable.

“Our biggest concern, in the short term, is the economy,” said Baggett. “We have been managing the company as if the economy was on the verge of a recession.”

AMPAM has positioned itself in the market to weather a downturn in the economy. Baggett said his company is almost evenly split between single-family and multi-family new construction. He said each one runs in different cycles during economic highs and lows.

“Our mid-term concern is finding and retaining employees,” he said. “We have very good middle management people — just not enough of them.”

To solve the worker shortage problem, AMPAM has created a “roving manager” program, which hires people from outside of the trade and trains them to be “good hvac people.” He added that the company pays for 100% of the training, noting that employees have a unique opportunity to join a fast track to management, thanks to the “start-up” business model.

“We are trying to create opportunities for our people by seeing what it is they need to succeed,” Baggett added. “Our employees have more opportunities than they ever have had. Gone are the old days of advancement through kinship.”

Baggett identified some of the hottest growth markets in the U.S. as Southern California and the Washington DC/Virginia/Mary-land areas.

“The Austin area is still good but not as hot as six months ago, before the drop in the technologies markets.”

Baggett stated that AMPAM has some definite plans for the future, including the implementation of a national branding campaign, a nationwide information system, and a preferred vendor purchasing program.

“We want to develop a business model that will work across the country,” he said. “The growth markets are in the warmer climates, and that’s where we will be focusing our attention.

“We have purposely kept a low profile because we want our actions to speak for us,” he said, “and we are well-received by people outside of our trade.

“We think that by offering a better business model, we can establish good national accounts. After all, it is some of our national accounts that are encouraging us to enter their markets as start-up companies.”